As property professionals struggle to get to grips with the 4th EU anti-money laundering (AML) Directive, along comes the 5th due to come into force by the 9th January 2020.
The legislation that will be based on the 5th Directive concerns letting agents and in particular those operating at the higher end of the market.
The recommendation, and all the evidence points to the fact that it will be the case, is that a rental property which attracts a rental figure of €10,000 Euros per calendar month or its currency equivalent will mean that the agent letting that property, must comply with the new regulations.
It’s yet to be clarified but early indications suggest this threshold will relate to both residential and commercial property.
Of course, the irony is that the level of client due diligence (CDD) currently undertaken by letting agents – with tenant referencing and proof of income – is more extensive than that carried out by sales agents.
However, where letting agents will see a change from the beginning of January is the additional CDD they’ll be obliged to carry out on their client – the landlord.
This is likely to include confirmation of a landlord’s identity, proof of ownership of the property being let and clarification of their status – is the landlord in question a politically exposed person. All this in addition to new rulings on deposits.
As things currently stand the regulations state that a transaction should not be undertaken by an agent on behalf of the client prior to forming a business relationship with them. This has proved problematic in the past.
There have been many instances where a substantial deposit has been paid by a prospective tenant and then subsequently the agent has raised concerns about the origin of the funds they’ve accepted. By then it’s too late. The agent is no longer in a position to consider returning the funds, which leaves them exposed to having potentially transferred criminal property.
All of this means that going forward letting agencies will have to ensure they have robust CDD procedures in place which clearly establish the authenticity of rental monies prior to their being received.
But there are other things under the 5th Directive that letting agents will have to look out for too. They’ll need to have in place comprehensive AML written policies and procedures and agree to undertake a firm-wide risk assessment in accordance with Regulation 18. And all staff must receive some form of recognised AML training as per Regulation 24.
Financial Crime Services has been in consultation with HMRC over the impact of the new legislation and we’ve made several recommendations clarifying the guidance as it currently stands. It’s important that it’s simple and easily understood by both sales and lettings agents.